Netflix Shares Soaring On Report Of Sale Talks With Verizon

The video rental company’s shares have spiked 6.8% in midday trading — an eye-popping standout on a day when the market’s down about 2%. The reason: website DealReporter says that Verizon is considering buying Netflix to get into the video streaming business. There’s just enough going on to make this plausible: Last week, Verizon CEO Lowell McAdam said that his company wants to offer video streaming, and had even looked at Hulu when it was on the block. He declined to comment on reports Verizon is preparing to team up with Coinstar’s Redbox. TechCrunch said that the companies were so far along in their plans, code-named Project Zoetrope, that they had set May 28 as the date when they’d commercially roll out their video download and rental service. Coinstar has said that it would unveil its video streaming plans by year’s end.

But just because a Verizon-Netflix deal is plausible doesn’t mean it will happen — or that it makes sense. Netflix has a market value of $4B. A buyer also would have to factor in all the commitments it has made to license movies and TV shows, which come to about $4.5B. “It would be far cheaper to buy Netflix’s subscribers than it would be to buy the service,” says Janney Montgomery Scott analyst Tony Wible, who has a “sell” on Netflix shares. Why, then, are investors taking the Verizon report so seriously? Since July, when Netflix made its disastrous decision to raise consumer prices, the stock has been in a free-fall — and its fans on Wall Street have been “looking for anything to turn the tide,” Wible says. A takeover rumor “is the simplest and easiest way to say, ‘maybe the stock has bottomed.’ “